The Central Board of Indirect Taxes and Customs (CBIC) has issued new guidelines regarding the Goods and Services Tax (GST) applicable to restaurant services within hotels, effective from April 1, 2025. These guidelines aim to clarify the GST rates based on the room tariffs of hotels and provide a more straightforward compliance framework for the hospitality industry.
Understanding the New GST Framework
Under the revised guidelines, the GST rate applicable to restaurant services within a hotel is directly linked to the room tariff charged by the hotel. This approach replaces the previous ‘declared tariff’ system, which often led to confusion due to varying pricing models adopted by hotels.
Key Highlights:
- Specified Premises Classification:
- Hotels that have charged a room rent exceeding ₹7,500 per day at any point during the previous financial year will be classified as ‘specified premises’ for the current financial year.
- Restaurant services provided within such specified premises will attract an 18% GST rate with the benefit of Input Tax Credit (ITC).ETCFO.com+3The Economic Times+3Upstox – Online Stock and Share Trading+3
- Non-Specified Premises:
- Hotels where the room rent did not exceed ₹7,500 per day in the preceding financial year will continue to have their restaurant services taxed at a 5% GST rate without the benefit of ITC.The Economic Times
- Voluntary Declaration Option:
- Hotels planning to increase their room tariffs beyond ₹7,500 per day in the upcoming financial year can voluntarily opt to be classified as ‘specified premises.’
- This declaration must be made between January 1 and March 31 of the current financial year.
- Newly registered hotels intending to fall under the ‘specified premises’ category must declare this status within 15 days of obtaining their registration.ETCFO.com
Rationale Behind the Change
The shift from the ‘declared tariff’ system to the ‘value of supply’ or transaction value approach is designed to align with the dynamic pricing models prevalent in the hotel industry. By basing GST applicability on actual transaction values, the CBIC aims to provide greater clarity and reduce ambiguities that previously existed.ETCFO.com
Implications for the Hospitality Sector
This updated framework offers several benefits and considerations for hotels and their in-house restaurants:
- Simplified Compliance: By linking GST rates to actual transaction values from the previous financial year, hotels can more easily determine their tax obligations for the current year, reducing administrative burdens.
- Financial Planning: Hotels can make informed decisions about their pricing strategies, knowing the GST implications of adjusting room tariffs above or below the ₹7,500 threshold.
- Competitive Positioning: Hotels may choose to adjust their room rates to either benefit from a lower GST rate on restaurant services or to offer enhanced services with the advantage of ITC, depending on their market positioning and customer base.
Expert Insights
Tax professionals have weighed in on the CBIC’s clarification:
Saurabh Agarwal, Tax Partner at EY, noted that the FAQs released by the CBIC simplify compliance by clarifying that if the value of hotel accommodation exceeds ₹7,500 per day in the preceding financial year, the premises will be subject to 18% GST with ITC. Hotels can voluntarily opt for the specified premises classification if the value doesn’t exceed ₹7,500 in the previous financial year, with the declaration remaining valid until they choose to opt out.
Action Steps for Hoteliers
Given the upcoming changes, hotel operators should:
- Review Financials: Assess the room tariffs charged during the current financial year to determine the GST implications for the next year.
